China Swaps Little Changed After Central Bank Lowers Repo Yield

China’s one-year interest-rate swaps were little changed after yesterday’s biggest rally this year as the central bank lowered yields on 28-day repurchase agreements for the first time since 2008.

The People’s Bank of China sold 30 billion yuan ($4.7 billion) of the contracts at 2.75 percent, according to a statement posted on its website. The yield had been unchanged at 2.8 percent since July. Official reports in the past few days showed exports beat analysts’ forecasts and new loans rose, while factory-output growth fell short of estimates.

“It’s an easing signal,” said Ju Wang, a Barclays Capital strategist in Singapore. “The lower repo, while not much, still suggests the PBOC’s willingness to yield to market-rate levels and avoid tight liquidity. We may see a bigger adjustment in the 91-day repo rate” later in the week, he said.

The one-year swap rate, the fixed cost needed to receive the seven-day repurchase rate, rose one basis point to 2.50 percent as of 4:30 p.m. in Shanghai, according to data compiled by Bloomberg. It touched 2.30 percent on June 8, the lowest level since October 2010.

China needs to further cut banks’ reserve requirements, boost fiscal spending and start project investment to sustain credit demand, according to a research report from HSBC Holdings Plc economists Sun Junwei and Qu Hongbin issued yesterday.

Property Curbs

The monetary authority reduced its one-year lending and deposit rates by a quarter of a percentage point to 6.31 percent and 3.25 percent, respectively, on June 8. The central bank also loosened controls on banks’ ability to set lending and deposit rates.

Local-currency loans climbed to 793.2 billion yuan in May, compared with the 700 billion yuan median forecast in a Bloomberg News survey of 29 economists and 681.8 billion yuan in April. China’s economy expanded 8.1 percent in the first quarter from a year earlier, the slowest pace in almost three years.

China’s benchmark money-market rate rose. The seven-day repurchase rate, a gauge of funding availability in the financial system, increased 13 basis points, or 0.13 percentage point, to 2.55 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The yield on 3.51 percent government bonds due February 2022 rose two basis points to 3.37 percent.

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